What is a primary market?

The primary market is the financial marketplace where new securities are issued and sold to investors for the first time. This process typically involves initial public offerings (IPOs), where a company offers shares to the public to raise capital for various purposes, such as expansion, paying off debt, or developing new products. This stage is crucial because it allows companies to access funding directly from investors before their securities begin trading on secondary markets.

Investors participating in the primary market are buying shares directly from the issuing company, making it distinct from other markets where previously issued securities are traded. The initial sale of the securities helps to certify their value and gives the company the capital it needs directly from the market. Thus, the core function of the primary market is the issuance of new securities, which sets the stage for future trades in the secondary market.